Behavioural biases in investments amongst the Maltese population

Abstract

Although theory suggests that most investors apply a rational approach to making investment decisions, it is also a known fact that some investors are subject to cognitive and emotional behavioural biases such as ‘mental accounting’, ‘regret avoidance’ and ‘overconfidence’. Such biases often lead to what can be considered as illogical and poorly reasoned rationalisations made by investors, with wrong assumptions and conclusions negatively affecting their investment decisions. Although these behavioural traits are rather commonly manifested by investors, very few are actually aware of them. Human nature being what it is, makes it much easier to identify such biases in others then in oneself! This dissertation aims to analyse the extent to which Maltese investors are prone to such behavioural biases. To fully analyse the trend of behavioural biases in investments amongst the Maltese population, a questionnaire was sent to several investors assessing their subjective responses across ten different behavioural biases. Six different demographics where also included in the research, so as to observe any relations between the level of behavioural biases in investors across different segments.